Icelandair is the largest subsidiary within the Group, accounting for around 53% of its income. In 2007 Icelandair carried 1.6 million passengers on its scheduled flights between Iceland, Europe and North America to a total of 24 destinations. The company operated a fleet of 12 Boeing 757 aircraft during the summer season for its scheduled operations.
The Icelandair business strategy is based on the geographical position of Iceland on the flight route between northern Europe and the eastern shore of the USA/Canada. By combining in its aircraft, passengers visiting Iceland, passengers departing from Iceland and passengers traveling across the Atlantic via Iceland, Icelandair has been able to expand its network steadily over the past decades.
In 2007 the Icelandair network revenue grew by 3%, while the number of passengers grew by 4% and load factors were down by 1 percentage points. Icelandair divides its customer base into three main markets:
Passengers from Iceland (32% of passengers):
With its large network Icelandair offered Icelandic customers direct scheduled flights to 24 destinations in Europe and North America, an astounding range for a market of 300 thousand people. The biggest routes in the Network are to London and Copenhagen. The year 2007 saw continued strong demand for all travel from Iceland.
Icelandair’s revenue from passengers from Iceland has grown by 15-20% annually over the last 3 years. The Icelandair frequent flyer program (Vildarklúbbur) now has over 150,000 members in Iceland and is still growing. The pricing policy of Icelandair and it’s schedule is built up to meet different needs of customers flying to, from and via Iceland. Main focus is business and must go travelers as well as high end leisure tourist traffic.
Passengers to Iceland (35% of passengers):
Iceland has enjoyed increasing popularity as a tourist destination over the past 25 years. The number of tourists visiting Iceland grew from 72 thousand in 1981 to 460 thousand in 2007, which corresponds to an increase of over 12% annually. The vast majority of these tourists travel to Iceland by Icelandair. The company has fuelled this increase by the establishment and development of a network with a very high frequency of flights to Iceland and by strong marketing efforts in Europe and North America.
Transatlantic passengers traveling via Iceland (33% of passengers):
Even though its market share on the North Atlantic market is less than 1%, it is a key factor in Icelandair’s operation. Due to the immense size of this market and the nominal market share held by Icelandair, it serves in effect as a gigantic reservoir of passengers. In its “via” marketing Icelandair focuses on city pairs with limited direct flights, and with its centrally located hub and quick turnaround times at Keflavik International Airport the company is able to offer competitive prices and flying times.
Marketing and selling the product
Icelandair has decades of experience in selling its products globally on the general consumer market. Among airlines, Icelandair attracts an unusually high percentage, or 68% of its customers, from outside its home market. In 2007 Icelandair reached its customers through four main channels:
01 Websites in local languages in all key markets. An increasing number of tickets are sold through the Internet, both on Icelandair’s own websites and third-party websites. Icelandair gets around 10 million people a year visiting the different Icelandair websides. The Icelandair web page is today the biggest seller for the Icelandair network.
02 Own sales offices in key markets, i.e. Iceland, the USA, the UK, Denmark, Sweden, Norway, Finland, France, the Netherlands and Germany with call centers staffed by people who speak the local languages. Additionally Icelandair has agreements with general sales agents in about 20 different countries all over the world which organize and take care of Icelandair sales activities in their markets.
03 Sales through more than 12,000 travel agents, tour operators and airlines all over the world through various contracts and agreements. Icelandair uses the Amadeus CRS system, which enables travel agents to book tickets with Icelandair instantly at their offices or on websites.
04 An Internet Club of about 600,000 active members, who receive special offers and information on a regular basis.
In 2007 the Icelandair website was also voted the best Icelandic website by IMARK. The website was also nominated the Best Website Design of the year by Technology for Marketing. The reward is given once a year and is accepted in the “internet world” to be the most important in Europe.
In 2007 Icelandair Technical Services, which provides maintenance and technical services for the Icelandair fleet which includes aircraft for Loftleiðir’s charter flights and cargo aircraft for Icelandair Cargo was incorporated into Icelandair. The majority of the work is performed at the Service Centre at Keflavik Airport, but increasingly maintenance is performed abroad with increased international flight operations.
In 2008 Icelandair is making several significant changes in order to increase the profitability of its operation. One new destination will be added to the Icelandair route network – Toronto, Canada, but overall capacity in the network will be reduced. Halifax becomes a full year destination as well as Berlin and Icelandair will maintain it’s strong position in the Scandinavian market. In addition to the introduction of a new destination, Icelandair has scheduled an increase in the number of flights to London, Paris, Frankfurt, Amsterdam, Helsinki, Munich and Barcelona next summer, while the Baltimore route has been closed.
As of summer 2008, Icelandair will maintain it’s new Iceland connections into the route network, including early morning departures from Copenhagen, Frankfurt and Paris to Keflavik and late morning departures to Boston and New York from Keflavik in addition to afternoon departures, Boston and New York to Keflavik and night departures from Keflavik to Copenhagen, Frankfurt and Paris. One of the main reasons for this increase is to provide better services and flexibility for business passengers.
A new income-generating operation in connection with in-flight entertainment, shopping and services for passengers has been set up following the purchase of a new in-flight entertainment system and new seats for the Icelandair fleet. As of March 2008 Icelandair will start offering its passenger a whole new flying experience. The new seats and in-flight entertainment system will be installed in all of Icelandair’s Boeing 757 passenger jets that are used on the company’s scheduled routes. The service will be upgraded and new uniforms will be designed. This will make Icelandair more competitive on it’s North Atlantic routes and give the company a unique position in it’s home market.
A new Operations Control Centre will be opened in March 2008 in order to increase the flexibility, efficiency and safety of the Icelandair network operation and improve passenger services. Fleet and crew management will be re-organized in connection with the establishment of the Centre.
A new Revenue Management System and Pricing structure has been implemented and resources have been placed at the disposal of the company management in order to increase passenger revenue for 2008.
Icelandair will continue on-going efforts to lower cost through increased utilization of resources and by constantly looking for the most cost efficient ways of providing customers with a highly valuable service. As part of this Icelandair will increasingly use information technology to simplify operation and make life easier for it’s customers.